“Trade war noise” brought Singapore banks’ share valuations down, providing an opportunity to accumulate them, Nomura said in a note on Monday, pointing to three reasons to keep buying the stocks.
- The Monetary Authority of Singapore tightened policy for the first time in six years, signalling confidence in the macro-economy, Nomura said. It noted Singapore’s advance gross domestic product (GDP) estimate for the first quarter showed 4.3 percent on-year growth, with the MAS expecting firm global demand this year. Nomura said it raised its 2018 Singapore GDP growth forecast to 3.0 percent from 2.5 percent. “This should support a stronger loans growth narrative for the Singapore banks. Our loans growth estimate for 2018 on average for the Singapore banks are at 7.9 percent (vs consensus of 6.2 percent),” the note said.
- Singapore banks’ asset quality was set to remain solid, Nomura said, adding its previous concern that fast-rising interest rates may damp asset quality has been assuaged. It noted the MAS tightening suggest a stronger Singapore dollar and a slower rise in Singapore interest rates. “It does seem that the non-financial corporate sector borrowing in Singapore dollars will continue to enjoy a relatively lower interest rate environment (vs the U.S. dollar), thus supporting growth and maintain its credit quality,” Nomura said. “The downside to this is that NIMs will not rise as fast, but we have already priced this into our estimates.”
- Singapore banks’ wealth management assets under management (AUM) has been outgrowing its peers on average last year, Nomura noted, citing Asian Private Banker’s Asia league table published earlier this month. It forecast average wealth management fees to grow 29.7 percent in 2018, to make up 8.9 percent of total revenue, up from 7.7 percent in 2017.
Nomura rates DBS and UOB at Buy and OCBC at Neutral.